As filed with the Securities and Exchange Commission on August 27, 1999
Registration No._______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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CAPITAL TITLE GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 6541 87-0399785
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
2901 EAST CAMELBACK ROAD, PHOENIX, ARIZONA 85016
(602) 954-0600
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
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DONALD R. HEAD
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CAPITAL TITLE GROUP, INC.
2901 EAST CAMELBACK ROAD
PHOENIX, ARIZONA 85016
(602) 954-0600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copy to:
CHRISTOPHER D. JOHNSON, ESQ.
SQUIRE, SANDERS & DEMPSEY L.L.P
40 NORTH CENTRAL AVENUE
PHOENIX, ARIZONA 85004
(602) 528-4000
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, check the following box and
list the Securities Act registration/ statement number of the earlier effective
registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462 (c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ] __________
CALCULATION OF REGISTRATION FEE
================================================================================
PROPOSED MAXIMUM PROPOSED AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE AGGREGATE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT * PRICE FEE
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Common stock 5,402,845 $2.50 $13,507,112 $3,755.00
- --------------------------------------------------------------------------------
* Estimated solely for the purpose of calculating the registration fee required
by Section 6(b) of the Securities Act of 1933, as amended, pursuant to Rules 457
(c) and 457 (h) under the Securities Act, on the basis of the average of the
high and low prices for shares of Common Stock as reported by the Nasdaq
SmallCap Market on August 17, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SECURITYHOLDER MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS DECLARED
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 27, 1999
PROSPECTUS
CAPITAL TITLE GROUP, INC.
5,402,845 SHARES
OF COMMON STOCK
Capital Title Group, Inc.
2901 East Camelback Road
Phoenix, Arizona 85016
Telephone: (602) 954-0600
THE OFFERING
All of the shares of common stock being offered in this prospectus have already
been issued by Capital Title Group and will be sold by the shareholders who own
them. The total shares covered by this prospectus includes 4,630,703 shares
currently held by the selling shareholders and an additional 772,142 shares of
common stock to be issued to them upon exercise of their warrants. The selling
shareholders can use this prospectus to sell all or part of their shares,
including the shares they receive through the exercise of their warrants.
NASDAQ SMALLCAP MARKET TRADING SYMBOL
Trading Price
Symbol on August 17, 1999
------ ------------------
CTGI $2.50
PROCEEDS FROM THIS OFFERING
The shareholders selling the common stock in this offering will receive all of
the proceeds from their sale, minus any commissions or expenses they incur.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY
IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING AT PAGE 13.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is August 27, 1999.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with
the U.S. Securities and Exchange Commission. You may read and copy any document
that we have filed at the SEC's public reference facilities. Please call the SEC
at 1-800-SEC-0330 for further information about its public reference facilities.
Our SEC filings are also available to you free of charge at the SEC's web site
at http://www.sec.gov.
Copies of publicly available documents that we have filed with the SEC can
also be inspected and copied at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
We have filed a registration statement on Form S-3 with the SEC that covers
the resale of the common stock offered by this prospectus. This prospectus is a
part of the registration statement, but the prospectus does not include all of
the information included in the registration statement. You should refer to the
registration statement for additional information about us and the common stock
being offered in this prospectus. Statements that we make in this prospectus
relating to any documents filed as an exhibit to the registration statement or
any document incorporated by reference into the registration statement may not
be complete and you should review the referenced document itself for a complete
understanding of its terms.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The documents that have been incorporated by
reference are an important part of the prospectus, and you should be sure to
review that information in order to understand the nature of any investment by
you in the common stock. In addition to previously filed documents that are
incorporated by reference, documents that we file with the SEC after the date of
this prospectus will automatically update the registration statement. The
documents that we have previously filed and that are incorporated by reference
include the following:
* our annual report on Form 10-KSB for the fiscal year ended December 31,
1998;
* our quarterly reports on Form 10-QSB for the quarterly periods ended March
31, 1999 and June 30, 1999;
* our current report on Form 8-K dated December 7, 1998; and
* our definitive proxy statement for our 1999 annual meeting of shareholders
dated March 22, 1999.
All documents and reports filed by us pursuant to Sections 13 (a), 13 (c),
14 or 15 (d) of the Securities Exchange Act of 1934 after the date of this
prospectus and prior to the date that this offering is terminated will
automatically be incorporated by reference into this prospectus. We will provide
you with copies of any of the documents incorporated by reference, at no charge
to you, however, we will not deliver copies of any exhibits to those documents
unless the exhibit itself is specifically incorporated by reference. If you
would like a copy of any document, please write or call us at:
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Capital Title Group, Inc.
2901 East Camelback Road
Phoenix, Arizona 85016
Attn: Corporate Secretary
Telephone: (602) 954-0600
You should only rely upon the information included in or incorporated by
reference into this prospectus or in any prospectus supplement that is delivered
to you. We have not authorized anyone to provide you with additional or
different information. You should not assume that the information included in or
incorporated by reference into this prospectus or any prospectus supplement is
accurate as of any date later than the date on the front of the prospectus or
prospectus supplement.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ BY YOU TOGETHER WITH THE MORE DETAILED
INFORMATION INCLUDED AT OTHER SECTIONS OF THIS PROSPECTUS. IN ADDITION, YOU
SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED UNDER "RISK FACTORS" AT PAGE 13
OF THIS PROSPECTUS.
CAPITAL TITLE GROUP, INC.
Capital Title Group, Inc. is a Delaware corporation which acts as the
parent holding company of the following subsidiaries:
(1) Capital Title Agency, Inc. is an Arizona corporation which has
operated under the authority of the State Banking Commission since
November 1, 1981. Capital Title Agency is an independent title agency
that provides escrow services and, as an agent for four title
insurance companies, issues title insurance policies in Maricopa,
Yavapai and Mohave Counties in Arizona. Capital Title Agency currently
operates 30 offices located throughout Maricopa, Yavapai and Mohave
Counties in Arizona.
(2) New Century Title Company, a California corporation, purchased a
dormant escrow and title agency in San Diego, California and began
operations as an independent title agency in July 1998. New Century
currently has three offices in San Diego County.
(3) New Century Title Company of Northern California is a California
corporation which acquired Northwestern Consolidated Corporation and
its subsidiaries in November 1998. Northwestern had operated as an
independent title agency since 1959. New Century of Northern
California is an independent title agency that provides escrow
services and, as an agent for a title insurance company, issues title
insurance policies in Sonoma, Contra Costa and Alameda Counties in
California. New Century of Northern California currently operates ten
offices in the San Francisco region.
We plan to aggressively continue our growth in Arizona and California, and
as conditions merit, to expand into other southern and southwestern states. We
intend to accomplish this expansion both through acquisition transactions and
through recruitment of escrow officers with significant existing revenue
production based upon their relationships with real estate brokers, mortgage
lenders and other industry participants. We intend to attempt to attract these
significant producers through employment packages that include commissions based
on generation of revenue and stock options.
Our principal executive officer are located at 2901 East Camelback Road,
Phoenix, Arizona 85016, and our telephone number is (602) 954-0600.
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OUR OPERATIONS
We are an independent title agency that provides escrow services and, as an
agent for First American Title Insurance Company, Chicago Title Corporation,
Stewart Information Services Corporation, United General Insurance Company and
Old Republic Insurance Company, issues title insurance policies that service the
real estate industry in seven counties in California and Arizona. Our operations
commenced in 1981 in Prescott, Arizona.
Our expansion began in 1996 and we currently operate 30 branch offices in
Maricopa, Yavapai and Mohave County, Arizona. During 1998 we entered the
California market where we have 13 branch offices in San Diego, Sonoma, Alameda
and Contra Costa Counties.
Our 1998 operations were positively impacted by the geographic locations in
which we operate. Arizona and California ranked among the top states in the
nation in 1998 in the rate of new job creation, population growth and gains in
personal income. Additionally, these states were some of the largest single
family housing markets in the nation, with Phoenix the 6th and San Diego the 7th
largest cities in the United States.
The June 1999 market share reports show us as the top title insurer in
Yavapai County, Arizona. As of June 1999, we ranked third in Maricopa County
market share, having moved up from tenth in 1997. We believe that our
combination of technology, management and employee stock incentives will play a
significant role in positively impacting our market share in the locations in
which we currently operate and in the areas into which we expand.
INDUSTRY OVERVIEW
Title insurance has become accepted as the most efficient means of
determining title to and the priority of interests in real estate in nearly all
parts of the United States. Virtually all real property lenders require their
borrowers to obtain title insurance policies when mortgage loans are made.
The title insurance industry has undergone changes in the past few years as
a result of revenue fluctuation based on changes in interest rates. Companies
have focused on advancing technology in order to reduce costs, improve accuracy
and respond to the continuing pressures within the real estate industry for
faster and more cost effective processing of transactions. The major expense of
a title agency company is the search and examination function in preparing
preliminary title reports, commitments and title policies. Major expenses
generally do not come from claim losses associated with the policies. Technology
has improved the accuracy and consistency of information and allowed companies
to maintain or increase their number of closings with the same number of or
fewer employees.
We possess advanced title report generation and processing technology that
combines title information from multiple sources via electronic data exchange.
We have implemented this technology in our Arizona operations and in our San
Diego County, California operations. This technology facilitates the expansion
of our operations in existing markets and we believe it outperforms the
technology of many larger title companies.
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TITLE POLICIES. Title insurance policies contain the terms and conditions
upon which a title underwriter will insure title to real estate. Generally,
buyers of real property or secured lenders are the beneficiaries of title
insurance policies.
Title insurance is different from other types of insurance because it
relates to past events that affect title to property at the time of closing and
not unforeseen future events. Prior to issuing policies, underwriters can
eliminate future losses by accurately performing searches and examinations. The
premium for title insurance is due in full on the closing date of the real
estate transaction. The premium is based upon the purchase price of the property
insured or the amount of the secured loan. Policy coverage generally terminates
upon resale or refinance of the property. The terms of coverage have become
standardized in accordance with forms approved by trade associations such as
American Land Title Association, Land Title Association of Arizona and
California Land Title Association.
Title insurance policies are issued on the basis of a preliminary report or
commitment. These reports are prepared after a search of public records, maps
and other relevant documents to ascertain title ownership and the existence of
easements, restrictions, rights of way, conditions, encumbrances or other
matters affecting the title to, or use of, real property. A visual inspection of
the property may also be made prior to the issuance of some title insurance
policies.
To facilitate this preparation of preliminary reports without the necessity
of manually searching public records, copies of public records, maps and other
relevant historical documents are compiled and indexed in a "title plant." Each
title plant relates to a particular county and is kept current on a daily or
other frequent basis by the addition of copies of recorded documents that affect
rights in real property in the particular county. Title companies often
subscribe to independent title information services to assist in the updating of
their title plants and the maintenance of title records.
DIRECT VS. AGENCY SALES. Preliminary reports and commitments to issue
policies are prepared by title underwriters, known as direct sales, or by
independent agents on behalf of the underwriters, known as agency sales. The
terms and conditions upon which the real property will be insured are determined
in accordance with the standard policies and procedures of the title
underwriter. In direct sales, the title underwriter issues the preliminary
report and commitment and retains the entire title premium paid in connection
with the transaction. In agency sales, the search and examination function is
performed by the independent agent and the majority of the premium collected is
retained by the agent, with the balance given to the title underwriter.
Independent agents may select among several title underwriters based upon the
amount of the premium split offered, the overall terms and conditions of the
agency agreement, including indemnification obligations of the agent and the
scope of services offered to the agent by the title underwriter. Agent
commissions vary by geographic region.
THE TITLE POLICY PROCESS. The following is a brief description of the
process of issuing a title insurance policy:
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(1) The customer, who is typically a real estate salesperson or broker,
escrow agent or lender, places an order for a title policy.
(2) Sales personnel note the details of the order and place a request with
the title department for a preliminary report.
(3) After the relevant historical data on the property is compiled, the
title officer prepares a preliminary report that documents:
* the current status of title to the property;
* any exemptions, exceptions and/or limitations that might be
attached to the policy; and
* specific issues that need to be addressed and resolved by the
parties to the transaction before the title policy will be
issued, such as removal of prior tax liens and payment of prior
loans on the property.
(4) The preliminary report is circulated to all the parties for
satisfaction of any specific issues.
(5) After all specific issues identified in the preliminary report are
satisfied, the escrow agent closes the transaction in accordance with
the instructions of the parties and the policy conditions.
(6) Once the transaction is closed and all monies have been released, the
policy is issued to the owner and the lender on a resale transaction
or to the lender only on a refinancing transaction.
LOSSES AND RESERVES. The maximum amount of liability under a title
insurance policy is usually the face amount of the policy plus the cost of
defending the insurer's title against an adverse claim. The reserve for claim
losses is based upon known claims as well as losses the insurer expects to incur
based on historical experience and other factors, including industry averages,
claims loss history, current legal environment, geographic considerations and
type of policy written. Because we operate as an independent agency, we provide
title insurance on behalf of third party underwriters. As such, our losses and
reserves are less than those typically carried by a title insurance underwriter.
ECONOMIC FACTORS AFFECTING INDUSTRY. Title insurance revenue is closely
related to the level of activity in the real estate market and the average sales
price of real estate transactions. Real estate sales are directly affected by
the availability of money to finance purchases. Other factors affecting real
estate activity include demand, mortgage interest rates, family income levels
and general economic conditions.
During 1998, there was a significant increase in the refinance market as a
result of low mortgage interest rates. Low mortgage rates coupled with a strong
economy also positively impacted the volume of residential home sale
transactions. The volume of refinance transactions has decreased significantly
in 1999 due to higher interest rates and a saturation in the refinance market.
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OUR STRATEGY
Our strategy is to pursue aggressive growth in the title insurance industry
in the Southwestern United States. Our strategy is:
COMMITMENT TO SERVICE. Our business is built on three basic entrepreneurial
premises:
* every employee is a salesperson;
* our services are a one-stop, computer-based contact point for complete
real estate transactions; and
* success is achieved through focus on an unequaled quality of customer
service.
Because title insurance policies and escrow functions are generally
standardized, the level of service provided is the key differentiating factor
among competitors in the title industry. One of our objectives is to issue
written title reports on substantially all of our transactions within two
working days from the opening of escrow. Through our commitment to customer
service, we seek to build lasting relationships with our real estate industry
clients.
MARKET FOCUS. Our market focus is on real estate brokers and mortgage
lenders as this business has historically been more consistent and less prone to
fluctuation than commercial, new home sales or refinancing segments of the
market. To set ourselves apart as a service company, we have developed industry
specific information technology that we provide to our clients. We are currently
developing a product called "E*TitleGram" that will allow real estate brokers
access to our services through the Internet.
EQUITY PARTICIPATION BY ESCROW OFFICERS. Escrow officers are the major
revenue producers for title insurance companies. Their business relationships
with real estate brokers, lenders and other industry participants are primarily
responsible for the direction of escrow and title business. We seek to attract
the most successful escrow officers through employment packages that include
commissions based on revenue produced and stock options as added motivational
incentives. We believe these programs will also promote company loyalty, which
will help to insulate our escrow officers from competitive recruiting efforts.
EXPANSION. We intend to accomplish our planned expansion through
acquisitions of existing title agencies and opening operations in California
and, as conditions merit, other states throughout the South and Southwest. We
expect these expanded operations to be enhanced by utilizing our recruiting
strategy that has proven extremely successful in Arizona.
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OUR OPERATIONS
We reported record revenue for each quarter in 1998, with revenue up 178%
for the year ended December 31, 1998 compared to the year ended December 31,
1997. Revenue was $23.2 million for the year ended December 31, 1998, compared
to $8.3 million for the year ended December 31, 1997. Although we completed a
significant acquisition in November 1998, most of the increase in our revenue in
1998 was attributable to internal growth. Of our $14.9 million revenue growth
from 1997 to 1998, $1.8 million was attributable to revenue from acquired
companies, $1.8 million was attributable to new start-up operations and $11.3
million was attributable to increased revenue from expansion of existing
operations.
For the fiscal years ended December 31, 1998 and 1997, revenue from the
issuance of title insurance policies represented 63% and 64%, respectively, of
our consolidated revenues. Escrow and related fees for the years ended December
31, 1998 and 1997 represented 30% and 26%, respectively, of our consolidated
revenue.
MARKETING. We believe the primary source of our business is from referrals
from participants in the real estate industry, such as real estate brokers,
mortgage lenders, developers and attorneys. In addition to the referral market,
we market our services directly to larger brokerages and real property lenders.
Marketing activities are performed by our officers and marketing representatives
whose sole function is the solicitation of business from major real estate
brokers, developers, owners and lenders. Escrow officers, in addition to their
escrow service duties, maintain and further develop relationships established
with current clients for on-going business. Our marketing representatives hold
educational seminars for real estate brokers, offer the use of services that
provides ease in placing valuations on surrounding property and train brokers
and their assistants in the use of our information technology.
ESCROW SERVICE. Our escrow departments are responsible for handling the
consummation of real estate sales, exchanges and a variety of other transactions
involving the sale or encumbrance of real property, refinancing of real
property, sales of assets of businesses and sales of promissory notes secured by
deeds of trust.
The escrow officer and assistant typically prepare escrow documents
pursuant to the real estate contract. The escrow instructions provide guidance
to all concerned parties as to the conditions required for the real estate
transaction. Furthermore, the instructions provide authorization for the escrow
agent to request information concerning matters appearing of record, the receipt
of all earnest monies and closing funds, the disbursement of seller proceeds,
payoff of underlying liens, judgments, real property taxes, insurance and any
other disbursement as set forth in the instructions or by the parties to the
transaction. The instructions also include authorization to prepare and obtain
documents necessary to complete the real estate transaction.
The escrow agent is held accountable by state governmental agencies for
strict compliance with the fiduciary responsibilities outlined by the escrow
instructions. The officer must possess a high degree of skill, professionalism
and confidentiality in the handling, preparation, collecting and recordation of
all escrow matters between the buyer, seller, real estate brokers and their
agents, developers, lenders and investors.
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TITLE DEPARTMENT. The primary function of the title department is the
accumulation and analysis of various documents from the many sources that make
up the public record. From this analysis, a preliminary report is written
showing the present condition of title. This report is given to the escrow
officer who, in turn, distributes it to the parties involved in the purchase
agreement. After the preliminary report has been read and approved by all the
parties and the requirements of the report have been fulfilled, the escrow will
proceed to closing and a final title insurance policy will be issued.
The accumulation of title data from public records which provides the
history of each parcel of real estate in a particular county is referred to as a
"title plant." We have entered into a multi-year service agreements for title
plant access in the counties in which we operate. In several counties, we are a
partial owner in a title plant or own a title plant which contains data prior to
the time period covered by a third party title plant provider. We can use the
services of a third party title plant provider or acquire additional title
plants for purposes of conducting our title research as we expand into
additional geographic areas. The cost of obtaining title plants varies with
economic and market conditions in the geographic area to which the title plants
relate. We believe we will be able to obtain access to title plants on terms and
conditions that are acceptable as we expand into other markets; however, there
is no guarantee that this will occur.
CLAIMS AND UNDERWRITING. We provide title insurance as an agent of First
American, United General, Chicago Title, Old Republic and Stewart. These
services are provided pursuant to underwriting agreements with each of these
underwriters. The underwriting agreements state the conditions on which we are
authorized to issue a title insurance policy on behalf of the underwriter and
prescribe the circumstances under which we may be liable to the underwriter if a
policy loss is attributable to errors made by us. The underwriting agreements
with First American, United General, Chicago, Old Republic and Stewart provide
that we:
* must fully comply with all requirements relating to the issuance of
title insurance within each of the counties in which we do business
and must comply with generally accepted standards of underwriting;
* will be liable for any losses payable on a basis of erroneous reports
or in excess of the stated liability on the policy when an insured
makes a successful claim based on negligence;
* may not write a policy in excess of the stated contract amount without
prior approval from the insurance company; and
* will be liable for the first $5,000 of each loss, unless specifically
waived by the insurance company.
We are not an exclusive agent for First American, United General, Chicago,
Old Republic or Stewart. Claims against title insurance policies normally arise
out of human error. During the process of accumulation and analysis of the
public record, some inaccuracies and inconsistencies are encountered that
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sometimes result in a situation in which interpretation of these documents could
lead to a claim. Such claims are reviewed by our staff and, if warranted, sent
to the insurance carrier for final disposition.
Underwriting is the process of analyzing risk assumption. As each
individual situation arises, the local staff makes a risk analysis. If the local
underwriting staff decides that the risk assumption is outside its underwriting
authority, the insurance carrier is contacted for its underwriting approval.
We assume the entire risk of losses incurred as a result of errors made
during the escrow process, however, we have secured insurance coverage to limit
our expense to significant losses.
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THE OFFERING
Securities Offered by the
selling shareholders............... 5,402,845
Common Stock Outstanding............. As of June 30, 1999, there were an
aggregate of 17,011,841 shares
outstanding(1)
Use of Proceeds...................... We will not receive any of the
proceeds of sales of Common stock
by the selling shareholders.
Risk Factors......................... The shares of common stock offered
hereby involve a high degree of
risk. See "Risk Factors" on page 13.
Nasdaq SmallCap Market Symbol........ "CTGI"
(1) Does not include 3,111,550 shares of common stock issuable upon exercise of
outstanding stock options Title Group's stock option plans and 772,142
shares of common stock issuable to the selling shareholders upon exercise
of the warrants included in the shares of common stock that are being
offered hereby.
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RISK FACTORS
BEFORE YOU BUY ANY OF THE SHARES OF COMMON STOCK BEING OFFERED BY THIS
PROSPECTUS, YOU SHOULD CAREFULLY READ AND CONSIDER EACH OF THE RISK FACTORS WE
HAVE DESCRIBED IN THIS SECTION. YOU SHOULD BE PREPARED TO ACCEPT ALL OF THESE
RISKS, INCLUDING THE RISK THAT YOU MAY LOSE YOUR ENTIRE INVESTMENT, BEFORE YOU
MAKE A DECISION TO BUY ANY OF THE SHARES OF COMMON STOCK.
WE HAVE EXPERIENCED LOSSES IN PRIOR YEARS
Our operations have not always been profitable. We have had losses in
recent years. For the fiscal years ended October 31, 1996 and December 31, 1997,
we reported net losses of approximately $1.0 million and $245,000, respectively.
Our current plans for expansion are expected to require significantly increased
levels of expenditures, which could increase our losses in the future. Although
we have reported net income of $1,676,027 for the year ended December 31, 1998
and net income of $109,297 and $214,499 for the three months and six months
ended June 30, 1999, respectively, no assurance can be given that our operations
will continue to be profitable or that future profits, if any, will be realized
at any significant level.
OUR BUSINESS IS SENSITIVE TO GENERAL ECONOMIC FACTORS AND SEASONALITY
Our revenues will closely reflect trends in the title insurance industry in
general and changes in general economic conditions. The level of revenues
realized by title insurance companies is highly sensitive to variations in
general economic factors and conditions including changes in the level of home
mortgage interest rates. Our revenues vary from period to period as a result of
changes in the number of housing starts, seasonal variations in resales of
residential properties, fluctuations in the number of applications for home
mortgage refinancings and, to a lesser extent, fluctuations in the levels of
commercial property development and other activity.
We operate without any significant backlog, and a majority of the revenue
realized in a particular fiscal quarter results from real estate transactions
initiated in that quarter. Our operating results for any particular quarter are
not necessarily indicative of any future results. The uncertainties associated
with general market trends may limit management's ability to forecast our
short-term results of operations accurately. Additionally, a high percentage of
our expenses are relatively fixed, including costs of personnel, and are not
susceptible to rapid reduction.
WE MAY HAVE DIFFICULTIES IN MANAGING GROWTH
If we are unable to manage growth effectively, it could have a material
adverse affect on our results of operations, financial condition or business. A
principal component of our growth strategy is to continue to expand through
additional acquisitions that complement our business in new or existing markets.
Our future growth will be dependent upon a number of factors including, among
others, our ability to successfully:
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* identify acceptable acquisition candidates;
* consummate acquisitions on favorable terms;
* integrate acquired business with our existing operations; and
* obtain financing to support expansion.
We cannot guaranty that we will successfully expand or that any expansion
will enhance our profitability. The failure to effectively identify, evaluate
and integrate acquired business could adversely affect our operating results. In
addition, our results achieved to date may not be indicative of our prospects or
ability to penetrate new markets, many of which may have different competitive
conditions than our current markets.
We expect our continued growth will place a significant strain on our
management and operations. Some of our key personnel have recently joined us,
and none of our officers has had significant experience in managing a large,
public title insurance company. Our future growth will depend in part on the
ability of our officers and other key employees to implement and expand
financial control systems and to expand, train and manage our employee base and
provide support to an expanded customer base.
COMPETITION MAY AFFECT OUR OPERATIONS
Intense competition among the major title insurance companies and any such
new entrants could lower premium and fee revenues for us. The title insurance
business is highly competitive, primarily in the areas of price, service and
expertise. For larger commercial customers and mortgage originators, the size
and financial strength of the title insurer are also important factors. The
title insurance industry is dominated by several large, well-capitalized
national companies that currently offer more comprehensive title insurance and
other real estate-related services than we do, and current consolidation trends
within the industry are expected to produce additional significant industry
competitors. Also, the removal of regulatory barriers in the future might result
in new competitors, including financial institutions, entering the title
insurance business.
FAILURE TO COMPLY WITH GOVERNMENTAL REGULATION MAY ADVERSELY AFFECT OUR BUSINESS
Failure to comply with governmental regulations or an inability to secure
or maintain any required licenses could have a material adverse affect on our
business. The title insurance and escrow businesses generally are subject to
extensive regulation under applicable state laws. These laws establish
supervisory agencies with broad administrative powers relating to issuing and
revoking licenses, regulating trade practices, licensing agents, approving
policy forms and approving rate schedules. We must be in compliance with these
regulations.
WE DEPEND ON OUR ADVANCED SOFTWARE SYSTEM
Our success is somewhat dependent on our ability to protect and continue to
improve our software system technology. Our software system technology is not
patented, and existing copyright laws offer only limited practical protection.
14
<PAGE>
We cannot be sure that the steps we have taken to protect our systems will be
adequate to prevent misappropriation of our technology. In addition, these
protections do not prevent independent third-party development of competitive
products or services.
OUR OPERATIONS MAY BE ADVERSELY AFFECTED BY PROBLEMS ASSOCIATED WITH THE YEAR
2000 ISSUE.
Many currently installed computer systems, imbedded microchips and software
products are coded to accept two digit entries in the date code field. These
date code fields will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. Any programs that have time sensitive
software may recognize date using "00" as the year 1900 rather than the year
2000. This could result in the computer shutting down or performing incorrect
computations. As a result, in the next few months, computer systems and/or
software used by numerous organizations will need to be upgraded to comply with
the Year 2000 date code requirements. Significant uncertainty exists in the
software industry concerning the potential effects associated with such
compliance. Although we believe our systems will be Year 2000 compliant by
December 31, 1999, there can be no assurance that our systems nor that of any of
our vendors or customers contain all necessary date code changes.
OUR STOCK PRICE IS VOLATILE
Broad market fluctuations or fluctuations in our operations may adversely
affect the market price of our common stock. The market for our common stock is
volatile. The trading price of our common stock has been and will continue to be
subject to:
* significant fluctuations in response to quarterly variations in operating
results;
* announcements regarding our business or the business of our competitors;
* changes in prices of our or our competitors' products and services;
* changes in product mix; and
* changes in revenue and revenue growth rates for us as a whole or for
geographic areas, and other events or factors.
Statements or changes in opinions, rating or earnings estimates made by
brokerage firms or industry analysts relating to the markets in which we operate
or expect to operate could have an adverse effect on the market price of our
common stock. Statements by financial or industry analysts regarding the impact
on our net income per share resulting from the acquisitions and the extent to
which such analysts expect potential business synergies to impact reported
results in future periods can be expected to contribute to volatility in the
market price of our common stock. In addition, the stock market as a whole has
from time to time experienced extreme price and volume fluctuations which have
particularly affected the market price for the securities of many title
insurance companies and which often have been unrelated to the operating
performance of these companies.
15
<PAGE>
POTENTIAL CONTROL BY THE EXISTING MANAGEMENT AND SHAREHOLDERS
If our management and shareholders act in concert, disposition of maters
submitted to shareholders or the election of the entire Board of Directors may
be hindered. Our directors, executive officers and holders of more than 5% of
our common stock beneficially owned approximately 35.1% of the outstanding
shares of common stock. Although these persons do not presently have any
agreements or understanding to act in concert, any such agreement or
understanding would make it difficult for others to elect the entire Board of
Directors and to control the disposition of any matter submitted to a vote of
stockholders.
SOME PROVISIONS IN OUR CHARTER DOCUMENTS AND BYLAWS MAY HAVE ANTI-TAKEOVER
EFFECTS
Our Articles of Incorporation and Bylaws contain some provisions that could
have the effect of discouraging a prospective acquirer from making a tender
offer, or which may otherwise delay, defer or prevent a change in control.
ABSENCE OF DIVIDENDS TO SHAREHOLDERS
We do not anticipate paying dividends on the common stock in the
foreseeable future. It is anticipated that earnings, if any, will be reinvested
in the expansion of our business.
OUR DEPENDENCE ON KEY PERSONNEL
Our inability to retain or attract key employees could have a material
adverse effect on our business and results of operations. Our operations depend,
to a great extent, upon the continued services of our senior management, as well
as our ability to attract additional members to our management team to support
our expansion strategy. Our success will depend upon our ability to attract and
retain escrow officers with significant revenue production capacity. Competition
for employees in the real estate services industry is intense, and there can be
no assurance that we will be able to attract and retain a sufficient number of
qualified employees. If our business grows, it may be difficult for us to hire,
train and assimilate the new employees needed. Our future success will also
depend to a significant degree upon continued contributions of our combined key
management, marketing and operational personnel.
OUR WARRANTS AND OPTIONS MAY AFFECT OUR FUTURE FINANCING
The existence of our options or warrants may adversely affect the terms on
which we can obtain additional financing. As of June 30, 1999 3,883,692 shares
of common stock were issuable upon the exercise of outstanding options and
warrants to purchase shares of common stock, including warrants to purchase
772,142 shares at a weighted average exercise price of $2.15 and options to
purchase 3,111,550 shares at a weighted average exercise price of $1.73. In
addition, we have convertible debentures which are convertible at the option of
the debenture holder into an aggregate of 62,500 shares of common stock. For the
life of such options, the option holders will have the opportunity to profit
from a rise in the price of common stock, with a resulting dilution in the
16
<PAGE>
interest of other holders of common stock. Further, the option holders can be
expected to exercise their options at a time when we would, in all likelihood,
be able to obtain additional capital by an offering of our unissued common stock
on terms more favorable to us than those provided by such options.
OUR OUTSTANDING SHARES MAY BE DILUTED
The market price of the shares of our common stock may be adversely
affected by the sale, or availability for sale, of a substantial number of
shares of common stock in the public market. We have 16,969,791 shares of common
stock outstanding. In addition, we have outstanding stock options and warrants
to acquire 3,883,692 shares of our common stock, including stock options and
warrants to acquire 1,768,592 shares of common stock that are immediately
exercisable. Further, the additional 62,500 shares of common stock are issuable
upon the conversion of currently outstanding subordinated convertible notes. The
eligibility of the foregoing shares to be sold to the public, whether pursuant
to Rule 144 or an effective registration statement, may have a material adverse
effect on the market value and trading price of the common stock.
In addition to the foregoing, we have filed a registration statement on
Form S-8 under the Securities Act to register the potential sale of 2,770,000
shares of common stock reserved for issuance under our stock plans.
RISK THAT FORWARD-LOOKING STATEMENTS MAY NOT COME TRUE
This prospectus and the documents incorporated herein by reference, contain
forward-looking statements that involve risks and uncertainties. We use words
such as "believe", "expect," "anticipate," "plan" or similar words to identify
forward-looking statements. Forward-looking statements are made based upon our
belief as of the date that such statements are made. These forward-looking
statements are based largely on our current expectations and are subject to a
number of risks and uncertainties, many of which are beyond our control. You
should not place undue reliance on these forward-looking statements, which apply
only as of the date of this prospectus. Our actual results could differ
materially from those anticipated in these forward-looking statements for many
reasons, including the risks faced by us described above and elsewhere in this
prospectus.
17
<PAGE>
SELLING SHAREHOLDERS
The following table provides information as of August 3, 1999, with respect
to the common stock beneficially owned by each selling shareholder. None of
these selling shareholders has a material relationship with us, with the
exception of Messrs. Jeffrey P. Anderson, Theo F. Lamb and Ben T. Morris who are
directors and Mr. Dale Head who is an officer with us. In addition, Mr. Morris
is a director of Sanders Morris Mundy which is the beneficial owner of 306,672
warrants included in this Offering. We believe that the selling shareholders
named in the following table have sole voting and investment power with respect
to the respective shares of common stock set forth opposite their names. The
shares of common stock offered by this prospectus may be offered from time to
time by the selling shareholders named below or their nominees.
Total Shares outstanding 17,011,841
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to the Owned After to the
Offering Number Offering
------------------- of Shares -------------------
Name Number Percent Offered Number Percent
- ------------------------ ------ ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
1991 Investment Company 37,037 * 37,037 -- *
A&G Johnson Family
Partnership 18,519 * 18,519 -- *
Jeffrey Anderson 30,000 * 30,000 -- *
Joe M. Bailey 18,519 * 18,519 -- *
Lorne D. Baine 18,518 * 18,518 -- *
George L. Ball 37,037 * 37,037 -- *
Susan Huffard Ball 18,518 * 18,518 -- *
Carol Barbour 18,519 * 18,519 -- *
Charles Barrier 18,519 * 18,519 -- *
James Beavers 185,185 1.1% 185,185 -- *
Bell Bottom Foundation 18,518 * 18,518 -- *
William Boyd 30,000 * 30,000 -- *
John Brewster 18,518 * 18,518 -- *
David Bromberg 18,519 * 18,519 -- *
Earle Brown 30,000 * 30,000 -- *
Gerald Cafarelli 30,000 * 30,000 -- *
Joann Catlett 18,518 * 18,518 -- *
Michael Chadwick 18,519 * 18,519 -- *
James Christmas 18,518 * 18,518 -- *
Classic Real Estate 30,000 * 30,000 -- *
Bobby Smith Cohn 18,519 * 18,519 -- *
Morton Cohn 74,074 * 74,074 -- *
Brett Combs 18,518 * 18,518 -- *
Higdon Compton 18,519 * 18,519 -- *
Craig Coppola 90,000 * 90,000 -- *
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to the Owned After to the
Offering Number Offering
------------------- of Shares -------------------
Name Number Percent Offered Number Percent
- ------------------------ ------ ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Barbara Crow 185,185 1.1% 185,185 -- *
Thomas Custer 37,037 * 37,037 -- *
Charles Davis 9,259 * 9,259 -- *
Hal Dean 30,000 * 30,000 -- *
William De Arman 37,037 * 37,037 -- *
Louis DelHomme 37,037 * 37,037 -- *
Max Dillard 37,037 * 37,037 -- *
John Drury 74,074 * 74,074 -- *
Wayne Duddlesten 37,037 * 37,037 -- *
J.A. Elkins 37,037 * 37,037 -- *
Leigh Ellis 18,519 * 18,519 -- *
Jerry Ellis 18,519 * 18,519 -- *
James Evans 30,000 * 30,000 -- *
Phillip Evans 18,518 * 18,518 -- *
Patrice Ferguson 18,519 * 18,519 -- *
Michael Ferry 120,000 * 120,000 -- *
Arthur Fields 29,630 * 29,630 -- *
Hardy Fields 18,518 * 18,518 -- *
Frederick Fine 29,630 * 29,630 -- *
Robert Fine 18,518 * 18,518 -- *
Don Fitch 18,518 * 18,518 -- *
Joseph Flom 37,037 * 37,037 -- *
Dan Fogarty 18,518 * 18,518 -- *
William Fogarty 18,518 * 18,518 -- *
Scott Fordham 18,519 * 18,519 -- *
Alan Frick 18,519 * 18,519 -- *
David Garrison 208,500 1.2% 208,500 -- *
MW George 18,518 * 18,518 -- *
Rosanne Giambalvo 18,519 * 18,519 -- *
Paul Greenberg 18,518 * 18,518 -- *
Greg Greenberg 18,518 * 18,518 -- *
Lauri Greenberg 18,518 * 18,518 -- *
Don Gunther 37,037 * 37,037 -- *
Tolar Hamblen 18,518 * 18,518 -- *
Steve Harter 37,037 * 37,037 -- *
John Hazelton 18,518 * 18,518 -- *
Dale Head 18,518 * 18,518 -- *
Carl Herbert 18,518 * 18,518 -- *
William Herbold 18,518 * 18,518 -- *
Ann Holstead 18,519 * 18,519 -- *
Courtney Hopson 18,519 * 18,519 -- *
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to the Owned After to the
Offering Number Offering
------------------- of Shares -------------------
Name Number Percent Offered Number Percent
- ------------------------ ------ ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Huffard Family 37,037 * 37,037 -- *
David Ingalls 30,000 * 30,000 -- *
J-All Partnership 55,556 * 55,556 -- *
Samuel Jones 18,519 * 18,519 -- *
Susan Keller 27,778 * 27,778 -- *
Brian Kenney 30,000 * 30,000 -- *
Nancy Kinder 18,519 * 18,519 -- *
Brede Klefos 18,519 * 18,519 -- *
Erik Klefos 18,519 * 18,519 -- *
Livingston Kosberg 18,519 * 18,519 -- *
Ted Lamb 2,241,223 13.2% 48,518 2,192,705 12.9%
Neil Lande 37,037 * 37,037 -- *
Michael Lawlor 18,519 * 18,519 -- *
Kurt Lawrence 18,518 * 18,518 -- *
Kenneth Lay 37,037 * 37,037 -- *
Roger Lindstedt 55,556 * 55,556 -- *
John Malanga 9,259 * 9,259 -- *
Keith Maxwell 37,037 * 37,037 -- *
Kirby McConnell 18,519 * 18,519 -- *
Stephen McConnell 99,537 * 37,037 62,500 *
Bruce McMacken 18,519 * 18,519 -- *
Ronald McMahon 37,037 * 37,037 -- *
Joseph McNally 60,000 * 60,000 -- *
Elisa Medhus 37,037 * 37,037 -- *
Rudy Miller 40,537 * 37,037 3,500 *
Minnesota Unity Life 180,000 1.1% 180,000 -- *
Michael Mitchell 18,518 * 18,518 -- *
MJ Management 18,519 * 18,519 -- *
Donald Moorehead 37,037 * 37,037 -- *
George Moorehead 37,037 * 37,037 -- *
Shelley Moorehead 37,037 * 37,037 -- *
Carlos Morris 18,519 * 18,519 -- *
Ben Morris 42,037 * 37,037 5,000 *
John Mundy 18,518 * 18,518 -- *
Charles Myers Trust 135,000 * 135,000 -- *
Alta Myers Trust 135,000 * 135,000 -- *
Charles Myers 30,000 * 30,000 -- *
William O'Malley 37,037 * 37,037 -- *
John O'Quinn 74,074 * 74,074 -- *
Gail Oakey 18,518 * 18,518 -- *
Andrew Phillippakis 42,000 * 42,000 -- *
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to the Owned After to the
Offering Number Offering
------------------- of Shares -------------------
Name Number Percent Offered Number Percent
- ------------------------ ------ ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Kelly Phillips 18,518 * 18,518 -- *
Donald Poarch 18,519 * 18,519 -- *
James Price 29,630 * 29,630 -- *
William Price 18,518 * 18,518 -- *
Leroy Quigley 18,518 * 18,518 -- *
Leonard Rauch 37,037 * 37,037 -- *
Jay Rea 18,518 * 18,518 -- *
J.L. Refsnes 30,000 * 30,000 -- *
Roy Rimmer 18,519 * 18,519 -- *
Rex Ross 18,518 * 18,518 -- *
Harold Rubenstein 18,518 * 18,518 -- *
Nolan Ryan 37,037 * 37,037 -- *
Sanders Morris Mundy 308,642 1.8% 308,642
Brad Sanders 27,778 * 27,778 -- *
Bret Sanders 27,778 * 27,778 -- *
Christine Sanders 37,037 * 37,037 -- *
Don Sanders 185,185 1.1% 185,185 -- *
Katherine Sanders 55,556 * 55,556 -- *
Laura Sanders 27,778 * 27,778 -- *
Doug Schnitzer 18,519 * 18,519 -- *
Brad Schraut 18,518 * 18,518 -- *
Stephen Scott 74,074 * 74,074 -- *
Bruce Slovin 37,037 * 37,037 -- *
William Solemene 22,222 * 22,222 -- *
Sherri Spicer 18,518 * 18,518 -- *
Joseph Swinbank 18,519 * 18,519 -- *
Paul Tate 18,519 * 18,519 -- *
Jack Tompkins 18,519 * 18,519 -- *
David Towery 18,519 * 18,519 -- *
Ronald Vagle 18,518 * 18,518 -- *
Charles Waldon 60,000 * 60,000 -- *
Cheryl Wazel 18,519 * 18,519 -- *
John Wazel 18,519 * 18,519 -- *
Don Weir 18,519 * 18,519 -- *
Eric Weir 18,519 * 18,519 -- *
Lisa Weir 18,519 * 18,519 -- *
Michael Zarriello 18,518 * 18,518 -- *
John Zogg 18,518 * 18,518 -- *
---------
5,402,845
</TABLE>
* Less than 1%.
(1) Percentages are based upon 16,969,791 shares of our common stock
outstanding as of August 3, 1999.
21
<PAGE>
USE OF PROCEEDS
The selling shareholders will receive the net proceeds from the sale of
their shares of common stock. We will not receive any proceeds from these sales.
DETERMINATION OF OFFERING PRICE
The selling shareholders may use this prospectus from time to time to sell
their common stock. The subsequent sale of the common stock received upon the
exercise of the warrants will be determined by the shareholder selling the
common stock. The price at which the common stock is sold may be based on market
prices prevailing at the time of sale, at prices relating to such prevailing
market prices, or at negotiated prices.
PLAN OF DISTRIBUTION
The common stock may be sold from time to time by the selling shareholders,
or by pledgees, donees, transferees or other successors in interest. Such sales
may be made on one or more exchanges or in the over-the-counter market or
otherwise, at prices and at terms then prevailing or at prices related to the
then current market price, or in negotiated transactions. The common stock may
be sold in one or more of the following types of transactions:
(a) a block trade in which a selling shareholder will engage a
broker-dealer who will then attempt to sell the common stock, or
position and resell a portion of the block as principal to facilitate
the transaction;
(b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this prospectus;
(c) an exchange distribution in accordance with the rules of such
exchange; and
(d) ordinary brokerage transactions and transactions in which the broker
solicits purchasers. In effecting sales, broker-dealers engaged by the
selling shareholders may arrange for other broker-dealers to
participate in the resales.
In connection with distributions of the common stock or otherwise, the
selling shareholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the common stock in the course of hedging the positions they assume with selling
shareholders. The selling shareholders may also sell common stock short and
redeliver the common stock to close out such short positions. The selling
shareholders may also enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the common
22
<PAGE>
stock, which the broker-dealer may resell or otherwise transfer pursuant to this
prospectus. The selling shareholders may also loan or pledge common stock to a
broker-dealer and the broker-dealer may sell the common stock so loaned or, upon
a default, the broker-dealer may effect sales of the pledged common stock
pursuant to this prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling shareholders in amounts
to be negotiated in connection with the sale. Such broker-dealers and any other
participating broker-dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act. In addition, any securities covered by
this prospectus which qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this prospectus.
Commissions and discounts, if any, attributable to the sales of the common
stock will be borne by the selling shareholders. The selling shareholders may
agree to indemnify any broker-dealer or agent that participates in transactions
involving sales of the common stock against various liabilities, including
liabilities arising under the Securities Act.
In order to comply with the securities laws of various states, if
applicable, sales of the common stock made in those states will only be through
registered or licensed brokers or dealers. In addition, some states do not allow
the securities to be sold unless they have been registered or qualified for sale
in the applicable state or an exemption from the registration or qualification
requirement is available and is complied with by us and the selling
shareholders.
Under applicable rules and regulations of the Exchange Act, any person
engaged in the distribution of the common stock may not simultaneously engage in
market-making activities with respect to our common stock for a period of up to
five business days prior to the commencement of such distribution. In addition
to those restrictions, each selling shareholder will be subject to the Exchange
Act and the rules and regulations under the Exchange Act, including, Regulation
M and Rule 10b-7, which provisions may limit the timing of the purchases and
sales of our securities by the selling shareholders.
DESCRIPTION OF SECURITIES
GENERAL
Our authorized capital stock consists of 50,000,000 shares of common stock,
$.001 par value.
COMMON STOCK
As of the date of this prospectus, 17,011,841 shares of common stock are
issued and outstanding. We have also reserved 772,142 shares of common stock for
issuance upon exercise of warrants (as described below under "Warrants"),
3,111,550 shares of common stock for issuance upon exercise of options granted
under our 1996 Stock Option Plan, and our Non-Employee Directors Stock Option
Plan.
23
<PAGE>
Holders of common stock are entitled to cast one vote for each share held
of record in all matters presented to stockholders. Holders of common stock are
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefore and, in the event of liquidation, to
share pro rata in any distribution of our assets after payment of liabilities.
Holders of common stock do not have preemptive rights to subscribe for
additional shares issued by us. All of the outstanding shares of common stock,
including the shares of common stock to be sold in this offering, are fully paid
and nonassessable.
WARRANTS
In connection with a private placement in March 1998, we sold 463,500 units
at $3.00 per share, with each unit consisting of two shares of common stock and
a warrant to purchase one share of common stock at a price of $2.50 within a
two-year period.
In connection with a private placement in April 1998, we sold 3,703,703
shares of common stock at $1.35 per share and issued three-year warrants to
purchase an additional 308,642 shares of common stock at $1.62 per share to an
investment banking firm that acted as the placement agent in the transaction.
STOCK TRANSFER AGENT
Western States Transfer, Inc. is the transfer agent for the common stock
and the warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Approximately 12,610,164 shares of common stock currently outstanding are
"restricted securities," as that term is defined in Rule 144 promulgated under
the Securities Act of 1933, as amended (the "Securities Act"). Such shares may
be sold only in compliance with Rule 144, pursuant to registration under the
Securities Act, or pursuant to an exemption from registration. Generally, under
Rule 144, each person holding restricted securities for a period of one year may
sell, every three-month period, in ordinary brokerage transactions or to market
makers an amount of shares equal to the greater of 1% of a company's then
outstanding common stock or the average weekly trading volume for the four weeks
prior to the proposed sale of such shares. Under Rule 144, sales of restricted
securities are allowed only if current public information about us is available.
Any person who is not our affiliate for 90 days preceding a sale, and who has
beneficially owned the shares to be sold for at least 2 years, may sell such
shares without complying with the requirements of Rule 144. Currently, most of
the restricted shares are eligible for sale under Rule 144 or under a
registration statement filed as a result of registration rights granted with
respect to such shares. Sales of substantial amounts of common stock by
stockholders under Rule 144, the registration statement, or otherwise, or even
the potential for such sales, are likely to have a depressive effect on the
market price of the common stock and could impair our ability to raise capital
through the sale of our equity securities.
LEGAL MATTERS
Certain legal matters have been passed upon for us by Squire, Sanders &
Dempsey L.L.P., Phoenix, Arizona.
24
<PAGE>
EXPERTS
Our audited financial statements for the year ended December 31, 1998,
incorporated by reference in this prospectus and elsewhere in the Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as
indicated in their report with respect thereto, and are incorporated by
reference herein in reliance upon such report given on the authority of said
firm as experts in accounting and auditing.
25
<PAGE>
NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
TABLE OF CONTENTS
Page
----
Where You Can Find More Information 2
Prospectus Summary 4
The Offering 12
Risk Factors 13
Selling Shareholders 18
Use of Proceeds 22
Determination of Offering Price 22
Plan of Distribution 22
Description of Securities 23
Legal Matters 24
Experts 25
CAPITAL TITLE GROUP, INC.
5,402,845 SHARES
COMMON STOCK
PROSPECTUS
August 27, 1999
26
<PAGE>
PART II TO FORM S-3
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses of the
Company in connection with the offering other than commissions and discounts, if
any.
SEC Registration Fee $ 3,500
Legal Fees and Expenses 5,000
Accounting Fees and Expenses 1,000
Printing and Engraving Expenses 2,000
Miscellaneous 1,000
-------
Total $12,500
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article IX of the Company's Certificate of Incorporation provides that no
director of the corporation shall be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
however, nothing contained in such Article IX eliminates or limits the liability
of a director of the Company to the extent provided by applicable laws (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law, (iii) for liability imposed under
Section 174 of Title 8 of the Delaware General Corporation Law ("DGCL") or
successor provisions thereof, or (iv) for any transaction from which the
director derived an improper personal benefit. The limitation of liability
provided herein shall continue after a director has ceased to occupy such
position as to acts or omissions occurring during such director's term or terms
of office. Section 145 of the DGCL enables a corporation to eliminate or limit
personal liability of members of its board of directors for violations of their
fiduciary duty of care. However, Delaware law does not permit the elimination of
a director's or officer's liability for engaging in intentional misconduct or
fraud, knowingly violating a law or unlawfully paying a distribution. The
statute has no effect on the availability of equitable remedies, such as an
injunction or rescission, for breach of fiduciary duty.
In addition, Article IX of the Company's Certificate of Incorporation
requires the Company to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Company) by reason of the fact
that he is or was a director, officer, employee or agent of the Company, or is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgements, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
27
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with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Article IX of the Company's Certificate of Incorporation further provides
that the Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Company to procure a judgment in its favor by
reason of the fact that his is or was a director, officer, employee or agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company and except
that no indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the Company for
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the Court of Chancery of the State of Delaware or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery of the State of Delaware
or such other court shall deem proper.
To the extent that a director, officer, employee or agent of the Company
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to therein or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith. Expenses
incurred in defending a civil or criminal action, suit or proceeding may be paid
by the Company in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors in the specific case upon
receipt of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the Company as provided in this Article IX.
28
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ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page Number or
Number Description Method of Filing
- ------ ----------- ----------------
<S> <C> <C>
4 Form of Common Stock Certificate *
5.1 Opinion re: legality of the securities being registered **
23.1 Consent of Independent Auditors **
23.2 Consent of Counsel See Exhibit 5.1
24 Powers of Attorney See Signature Page
</TABLE>
* Previously filed as an Exhibit to the Company's Registration Statement on
Form S-1 (File No. 33-14539).
** Filed with this registration statement.
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant hereby undertakes to file, during any
period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(a) To include any prospectus required by Section 10 (a) (3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement; provided,
however, that paragraphs (a) and (b) shall not apply if such
information is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15 (d) of the
Securities and Exchange Act that is incorporated by reference
into this Registration Statement.
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material chance to such information in the
registration statement.
2. The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
29
<PAGE>
3. The undersigned Registrant hereby undertakes to remove from
registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of
the offering.
4. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13 (a) or
Section 15 (d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15 (d) of the Securities Exchange Act of 1934)
that is incorporated by reference into this registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
5. The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus
is sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to
and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X
are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the
latest quarterly report that is specifically incorporated by reference
in the prospectus to provide such interim financial information.
6. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Scottsdale, State of Arizona, on August 3, 1999.
CAPITAL TITLE GROUP, INC.,
a Delaware Corporation
By: /s/ Donald R. Head
Donald R. Head
Chairman and Chief Executive Officer
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, constitute and
appoint DONALD R. HEAD, his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities to sign any and all pre-and post-effective
amendments (including any amendments pursuant to Rule 462 (b) to this Form S-3
Registration Statement, and to file the same with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting such attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as he or she might or could do in person, hereby ratifying and confirming all
that such attorney-in-fact and agents, or each of them, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Donald R. Head Chairman of the Board, President August 3, 1999
- ------------------------ and Chief Executive Officer
Donald R. Head (Principal Executive Officer)
/s/ Mark C. Walker Chief Financial Officer (Principal August 3, 1999
- ------------------------ Financial and Accounting Officer)
Mark C. Walker
/s/Richard A. Alexander Director August 3, 1999
- ------------------------
Richard A. Alexander
/s/ Jeffrey P. Anderson Director August 3, 1999
- ------------------------
Jeffrey P. Anderson
31
<PAGE>
/s/ David C. Dewar Director August 3, 1999
- ------------------------
David C. Dewar
/s/ Andrew A. Johns Director August 3, 1999
- ------------------------
Andrew A. Johns
/s/ Theo F. Lamb Director August 3, 1999
- ------------------------
Theo F. Lamb
/s/ Robert B. Liverant Director August 3, 1999
- ------------------------
Robert B. Liverant
/s/Stephen A McConnell Director August 3, 1999
- ------------------------
Stephen A McConnell
/s/ Ben T. Morris Director August 3, 1999
- ------------------------
Ben T. Morris
33
EXHIBIT 5.1
SQUIRE, SANDERS & DEMPSEY L.L.P.
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004
Telephone: (602) 528-4000
Telecopier: (602) 253-8129
U.S. Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: Capital Title Group, Inc.
Ladies and Gentlemen:
This firm has acted as counsel to Capital Title Group, Inc., a Delaware
corporation (the "Company"), in connection with the registration for resale
under the Securities Act of 1933 of 5,402,845 shares of its common stock, $.001
par value per share (the "Shares"), pursuant to a Registration Statement on Form
S-3 (the "Registration Statement"), and certain matters relating thereto. In
such capacity, we have examined such documents and undertaken such further
inquiry as we consider necessary for rendering the opinions hereinafter set
forth
Based upon the foregoing, we are of the opinion that the Shares are validly
issued, fully paid and nonassessable.
We acknowledge that we are referred to under the heading "Legal Matters" in
the Registration Statement, and we hereby consent to the use of our name in such
Registration Statement. We further consent to the filing of this opinion as
Exhibit 5.1 to the Registration Statement.
Respectfully Submitted,
/s/ Squire, Sanders & Dempsey L.L.P.
SQUIRE, SANDERS & DEMPSEY L.L.P.
33
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Capital Title Group,
Inc. for the registration of 5,402,845 shares of its common stock and to the
incorporation by reference therein of our report dated March 5, 1999, with
respect to the consolidated financial statements included in its Annual Report
(Form 10-K) for the year ended December 31, 1998, filed with the Securities and
Exchange Commission.
Ernst & Young LLP
